What changed in this filing

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Item 1. Business

2023-02-16 compared with 2022-02-17 · 48 added, 44 removed, 181 unchanged (34% of the section changed)

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Company Overview

We provide medical insurance for cats and dogs throughout the United States, Canada, Puerto Rico, and Australia.

Our data-driven, vertically-integrated approach enables us to provide pet owners with products that offer what we believe is the highest value medical insurance, priced specifically for each pet’s unique characteristics and coverage level.

We provide medical insurance for cats and dogs throughout the United States, Canada, Europe, Puerto Rico, and Australia.

Through our data-driven, vertically-integrated approach, we develop and offer high value medical insurance products, priced specifically for each pet’s unique characteristics and coverage level.

We operate in two business segments:

subscription business and other business.

We generate revenue in our subscription business segment primarily by subscription fees from our “Trupanion” branded products.

We generate revenue in our subscription business segment primarily by subscription fees from direct-to-consumer products.

We operate our subscription business segment similar to other subscription-based businesses, with a focus on achieving a target margin prior to our pet acquisition expense and acquiring as many pets as possible at our targeted average estimated internal rate of return.

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Consequently, self-insuring is not an effective solution for many individual pet owners.

Our monthly subscription products, priced specifically for each pet’s unique characteristics, help pet owners budget for unforeseen medical expenses.

Our core “Trupanion” product was designed by veterinarians to enable them to practice best medicine – thus recommending the optimal treatment for the pet.

High quality medical insurance for pets prevents decisions being made due to financial constraints and ensures the best care for the pet.

As a result, we believe our Trupanion product enables veterinarians to establish stronger ties and better alignment with their clients.

Trupanion members tend to visit their veterinarian more frequently and spend more money on the best course of treatment for their pet.

This results in better health outcomes for pets, which we believe creates a flywheel effect that has been the key driver of growth for our subscription business.

Our monthly subscription products, priced specifically for each pet’s unique characteristics and coverage level, help pet owners budget for unforeseen medical expenses.

Through our high quality medical insurance products, pet owners are able to ensure the best care for their pet, and avoid decisions being made due to financial constraints.

Our monthly subscription business model provides us with high quality predictable and recurring revenue.

Our subscription business’s cost-plus model is designed to spread the risk evenly within each category of pets so our members can budget for unexpected veterinary costs.

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We believe our data and approach to pricing is unmatched and provides us with a greater understanding of anticipated veterinary costs.

We leverage this to price our subscription plan for each pet based on their specific circumstances such as breed, age (at enrollment), geography, and desired deductible or co-payment so that, in aggregate, the amounts paid by owners of lucky pets helps to cover the veterinary costs incurred by unlucky pets.

We believe our actuarial team, working with our granular data, is able to price our subscription plan much more accurately than other players in the industry, enabling us to provide our members with the highest value proposition.

Our core “Trupanion” product also provides a differentiated experience to our members, including the use of our proprietary, patented software that is designed to communicate directly with a veterinary hospital’s practice management software.

We leverage this to price our subscription plan for each pet based on their specific circumstances such as breed, age (at enrollment), geography, desired deductible or co-payment and coverage level, so that, in aggregate, the amounts paid by owners of lucky pets helps to cover the veterinary costs incurred by unlucky pets.

Our core “Trupanion” product was designed by veterinarians to enable them to practice the best medicine – thus recommending the optimal treatment for the pet.

As a result, we believe our Trupanion product enables veterinarians to establish stronger ties and better alignment with their clients.

Trupanion members tend to visit their veterinarian more frequently and spend more money on the best course of treatment for their pet.

This results in better health outcomes for pets, which we believe creates a flywheel effect that has been the key driver of growth for our subscription business.

Through the use of our proprietary, patented software designed to communicate directly with a veterinary hospital’s practice management software, we are able to offer a differentiated experience to pet owners.

Using our software, veterinary hospitals can receive payment from us directly for approved invoices in seconds, with their clients (our members) only paying their deductible or co-payment of covered treatments.

We believe this unique solution, which is offered free to veterinarians and pet owners, transforms the insurance experience.

Due to our focus on providing a superior value proposition and member experience, our members have been extremely loyal.

Since 2010, we have a 98.6% average monthly retention rate in our subscription business.

Our growing and loyal membership base provides us with highly predictable and recurring revenue.

Our other business segment is comprised of other product offerings that generally have a business-to-business relationship and different margin profiles than our subscription segment.

These include providing pet insurance policies on behalf of the Veteran Affairs program, employer sponsored programs, and writing policies on behalf of third parties.

These include providing pet insurance policies on behalf of the Veteran Affairs program, employer sponsored programs, and underwriting policies on behalf of third parties that do not carry reference to the Trupanion brand.

Additionally, our other business segment includes the sale of software solutions.

This segment provides us with data as well as generates profits that we can invest in growing Trupanion.

Our target market is large and under-penetrated.

Our target markets are large and under-penetrated, as measured by insured pets:

North America 1

Continental Europe Australia

Household dogs and cats (in thousands) 200,000 139,000 8,900

Market penetration 2.0 % 5.6 % 11.2 %

1 According to Insurance Information Institute and Canadian Animal Health Institute, there are approximately 200 million household dogs and cats in the United States and Canada.

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Increasing the number of referrals from members.

We believe that it is critical to our long-term success that existing members add a pet or refer their friends and family to Trupanion.

As such, we focus on improving the member experience, including increasing the percentage of claims that are processed rapidly at checkout and paid directly to veterinarians through our patented, proprietary software.

We seek to grow the number of existing members that add a pet or refer their friends and family to Trupanion.

We do so by focusing on improving the member experience, including increasing the percentage of veterinary invoices that are processed rapidly at checkout and paid directly to veterinarians through our patented, proprietary software.

Improving conversion.

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Automating the payment of veterinary invoices.

We use machine learning to leverage data so we can automate the payment of veterinary invoices.

We use artificial intelligence and machine learning to leverage data so we can automate the payment of veterinary invoices.

We intend to increase the percentage of veterinary invoices paid without human intervention with the goal of ensuring that we can process veterinary invoices in seconds and do so without reducing the quality of our decision making on a case-by-case basis.

Exploring other member acquisition channels.

We regularly evaluate new member acquisition channels.

We intend to pursue those new channels that we believe could, over time, deliver our desired return on investment.

Growing additional member acquisition channels.

We are growing new member acquisition channels including employee benefits, point-of-sale, retail and direct-to-consumer, for the sale of our pet medical insurance products.

We also intend to pursue new channels that we believe could, over time, deliver our desired return on investment.

Aligning with strategic partners.

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Expanding internationally.

While we are primarily focused on capturing the large opportunity in the U.S.

and Canadian markets, we also operate in the Australian market through a joint-venture, and we continue to explore other international expansion opportunities.

While the majority of our revenue is derived from the sale of insurance products in the U.S.

and Canada, we have operations in Europe and operate in Australia through a joint-venture.

We continue to explore other international expansion opportunities.

Expanding our product offering.

We intend to introduce additional monthly subscription products, maintaining what we believe to be the highest value pet medical insurance, but with varying levels of coverage.

Pursuing other revenue opportunities.

We intend to continue to pursue opportunities to provide pet owners with complementary products and services.

Pursuing other non-insurance revenue offerings.

We intend to continue pursuing opportunities to provide pet owners with complementary products and services.

For example, we have invested in a pet food initiative to explore whether pets on a calorie-controlled, high-quality diet have improved health outcomes that can justify a decrease in the cost of their medical insurance.

In addition, within our other business segment, our wholly-owned insurance subsidiary, American Pet Insurance Company, has partnered with unaffiliated general agents offering pet insurance products since 2012.

We also continue to expand our other business segment by selling software solutions to third parties.

We also sell software solutions to third parties.

Sales and Marketing (New Pet Acquisition)

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We compete primarily with pet owners who choose to self-fund their veterinary costs, mainly via credit cards, as well as new and existing pet insurance brands.

The vast majority of pet owners in the United States and Canada do not currently have medical insurance for their pets and there is very little movement from one insurance company to another due to pre-existing conditions.

As a result, we are focused primarily on expanding the overall size of the market by providing pet owners with the highest value proposition, the broadest coverage, and 24/7 service to our members.

We view our primary competitive challenge as educating pet owners on why Trupanion is a better alternative to self-insuring.

We view our primary competitive challenge as educating pet owners on why high-quality medical insurance for pets is a better alternative to self-insuring.

The vast majority of pet owners in the markets in which we operate do not currently have medical insurance for their pets and there is very little movement from one insurance company to another due to pre-existing conditions.

As a result, we are focused primarily on expanding the overall size of our markets by providing pet owners with high value, transparent medical coverage designed for each pet's unique characteristics and coverage level.

We have been competing against at least 20 brands at any given time in our operating history.

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Our team members are our greatest asset, and we focus on attracting great people to our team and offering high-quality experiences to all team members.

As of December 31, 2021, we employed 1,131 people across the U.S., Canada and the U.K.

As of December 31, 2022, we employed 1,187 people across the U.S., Canada and Europe.

Our team is further supported by 158 field sales Territory Partner business owners and their associates who represent Trupanion.

We also contract with team members in the Philippines through a third-party service provider, and we operate in Australia through a joint venture.

Our team is increasingly global with team members working in our Seattle headquarters, Manchester England office, and virtually across the U.S., Canada, and U.K.

Our team is increasingly global with team members working in our Seattle headquarters in the United States, in the U.K.

office, and virtually across the U.S., Canada, and Europe.

Our Seattle headquarters office is pet friendly.

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• Resources for Wellbeing – We offer a variety of benefits to support wellness at and away from work, including free access to our onsite gym and an Employee Assistance Program for confidential support to navigate life's challenges.

We also offer to our team members globally a virtual healthcare concierge service through a leading third-party provider specializing in the field of virtual medicine.

• Sabbatical - For every five consecutive years of service at Trupanion, team members are eligible for a paid five-week sabbatical.

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• Medical Insurance for Your Pet – Team members have the option to enroll one dog or cat in 100% company paid Trupanion medical insurance at the highest coverage level we offer.

• Health Savings Account – Team members enrolled in our eligible medical plan have access to a Trupanion funded Health Spending Account.

• Flexible Spending Dollars – Team members receive flexible spending dollars each year on benefits of their choice, including contributions to dependent premiums, fitness and nutrition, childcare, and personal development.

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We have multiple employee-led resource groups that celebrate aspects of our team’s diversity and help foster a welcoming and safe space for support, education, professional development, and networking.

We have a large representation of women at Trupanion including over 65% of leadership positions.

We have a large representation of women at Trupanion including 59% of leadership positions.

As part of our strategic plan, we have also set a goal to increase the representation of underrepresented groups on our teams beginning with underrepresented races and ethnicities.

To achieve this goal we are taking specific actions to hire, retain, and develop people from underrepresented races and ethnicities, and further a culture of inclusion at Trupanion.

For example, among other steps we have taken, we have expanded the number of employee resource groups, are developing a DEIB curriculum that will be required for all team members, continue to develop accessibility enhancements to both our physical and digital spaces, and are setting department-level representation goals linked to executives’ compensation.

Our 2022 overall new hire representation goals were recently publicly shared in our Corporate Social Responsibility report.

To achieve this goal we are taking specific actions to hire, retain, and develop people from underrepresented groups, and further a culture of inclusion at Trupanion.

For example, among other steps we have taken, we have expanded the number of employee resource groups, developed a DEIB curriculum that is required for all team members, continue to develop accessibility enhancements to both our physical and digital spaces, and set department-level representation goals linked to compensation.

Trupanion is committed to paying equitably for equal work, regardless of gender or race/ethnicity, and conducts pay equity analyses as part of our efforts in furtherance of this commitment.

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At Trupanion we are committed to helping everyone grow and thrive along with the company.

We are proud to continually see about 20% of our team members transition to new roles within the company each year.

We are proud to continually see about 23% of our team members transition to new roles within Trupanion each year.

Team members have access to ongoing development designed to help them succeed in their roles today, develop skills for the future, and build a career at Trupanion.

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• Leadership Development – Our Leadership Unleashed curriculum offers specific leadership development programs both for new managers leading for the first time and for more experienced leaders leading teams of other leaders.

We are proud of our response to the COVID-19 pandemic.

We were one of the first Seattle-area public companies to transition to fully virtual work, doing so before it was required.

We prioritize the safety of all members of our team.

For example, when the COVID-19 pandemic emerged, we were one of the first Seattle-area public companies to transition to fully virtual work, doing so before it was required.

Since then we have kept our culture alive with more frequent all hands meetings and office hours with leadership, and converted many of our office events, like the annual Pet Pageant, to virtual formats.

Since June 2021, we have offered hybrid work arrangements.

We also offer complimentary COVID testing available 24/7 at our Seattle office for team members and their loved ones.

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insurance companies.

As of December 31, 2021, APIC had four IRIS ratios outside the usual range, relating to net premiums written to surplus, change in net premiums written, change in policyholders’ surplus, and investment yield.

As of December 31, 2022, APIC had three IRIS ratios outside the usual range, relating to net premiums written to surplus, change in adjusted policyholders’ surplus, and investment yield.

While a ratio outside the usual range is not considered a failing result, regulators may investigate or monitor an insurance company if its IRIS ratios fall outside the prescribed usual range .

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In 2013, we formally changed our name to Trupanion, Inc.

Our principal executive offices are located at 6100 4th Avenue South, Seattle, Washington 98108, and our telephone number is (855) 727-9079.

Our principal executive offices are located at 6100 4th Avenue South, Seattle, Washington 98108, USA, and our telephone number is +1 (855) 727-9079.

Our website address is www.trupanion.com.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business